BILL NUMBER: SB 328	CHAPTERED  07/06/99

	CHAPTER   60
	FILED WITH SECRETARY OF STATE   JULY 6, 1999
	APPROVED BY GOVERNOR   JULY 6, 1999
	PASSED THE ASSEMBLY   JUNE 21, 1999
	PASSED THE SENATE   MAY 25, 1999

INTRODUCED BY   Senator Alpert

                        FEBRUARY 8, 1999

   An act to amend Sections 726.5 and 736 of the Code of Civil
Procedure, relating to real property.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 328, Alpert.  Real property:  liability.
   Existing law establishes specified, alternative remedies with
respect to specified real property security which is environmentally
impaired, as defined, and where the borrower's obligations to the
secured lender are in default.  It also establishes an action for
breach of contract with respect to real property which is the subject
of a written warranty, indemnity, covenant, or promise relating to
hazardous substances.  These remedies and this action are not subject
to the one-form-of-action limitation in other provisions of existing
law.  Existing law also authorizes the appointment of a receiver to
enable defined secured lenders to enter and inspect real property
security for hazardous substances.  The alternative secured creditor'
s remedies and the breach of contract action provided by these
provisions of existing law only apply to loans, extensions of credit,
guaranties, or other obligations secured by real property made,
renewed, or modified between January 1, 1992, and January 1, 2000.
   This bill would delete the January 1, 2000, limitation.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 726.5 of the Code of Civil Procedure is amended
to read:
   726.5.  (a) Notwithstanding subdivision (a) of Section 726 or any
other provision of law except subdivision (d) of this section, a
secured lender may elect between the following where the real
property security is environmentally impaired and the borrower's
obligations to the secured lender are in default:
   (1) (A) Waiver of its lien against (i) any parcel of real property
security that is environmentally impaired or is an affected parcel,
and (ii) all or any portion of the fixtures and personal property
attached to the parcels; and
   (B) Exercise of (i) the rights and remedies of an unsecured
creditor, including reduction of its claim against the borrower to
judgment, and (ii) any other rights and remedies permitted by law.
   (2) Exercise of (i) the rights and remedies of a creditor secured
by a deed of trust or mortgage and, if applicable, a lien against
fixtures or personal property attached to the real property security,
and (ii) any other rights and remedies permitted by law.
   (b) Before the secured lender may waive its lien against any
parcel of real property security pursuant to paragraph (1) of
subdivision (a) on the basis of the environmental impairment
contemplated by paragraph (3) of subdivision (e), (i) the secured
lender shall provide written notice of the default to the borrower,
and (ii) the value of the subject real property security shall be
established and its environmentally impaired status shall be
confirmed by an order of a court of competent jurisdiction in an
action brought by the secured lender against the borrower.  The
complaint for a valuation and confirmation action may include causes
of action for a money judgment for all or part of the secured
obligation in which case the waiver of the secured lender's liens
under paragraph (1) of subdivision (a) shall result only if and when
a final money judgment is obtained against the borrower.
   (c) If a secured lender elects the rights and remedies permitted
by paragraph (1) of subdivision (a) and the borrower's obligations
are also secured by other real property security, fixtures, or
personal property, the secured lender shall first foreclose against
the additional collateral to the extent required by applicable law in
which case the amount of the judgment of the secured lender pursuant
to paragraph (1) of subdivision (a) shall be limited to the extent
Section 580a or 580d, or subdivision (b) of Section 726 apply to the
foreclosures of additional real property security.  The borrower may
waive or modify the foreclosure requirements of this subdivision
provided that the waiver or modification is in writing and signed by
the borrower after default.
   (d) Subdivision (a) shall be inapplicable if all of the following
are true:
   (1) The release or threatened release was not knowingly or
negligently caused or contributed to, or knowingly or willfully
permitted or acquiesced to, by any of the following:
   (A) The borrower or any related party.
   (B) Any affiliate or agent of the borrower or any related party.
   (2) In conjunction with the making, renewal, or modification of
the loan, extension of credit, guaranty, or other obligation secured
by the real property security, neither the borrower, any related
party, nor any affiliate or agent of either the borrower or any
related party had actual knowledge or notice of the release or
threatened release, or if such a person had knowledge or notice of
the release or threatened release, the borrower made written
disclosure thereof to the secured lender after the secured lender's
written request for information concerning the environmental
condition of the real property security, or the secured lender
otherwise obtained actual knowledge thereof, prior to the making,
renewal, or modification of the obligation.
   (e) For purposes of this section:
   (1) "Affected parcel" means any portion of a parcel of real
property security that is (A) contiguous to the environmentally
impaired parcel, even if separated by roads, streets, utility
easements, or railroad rights-of-way, (B) part of an approved or
proposed subdivision within the meaning of Section 66424 of the
Government Code, of which the environmentally impaired parcel is also
a part, or (C) within 2,000 feet of the environmentally impaired
parcel.
   (2) "Borrower" means the trustor under a deed of trust, or a
mortgagor under a mortgage, where the deed of trust or mortgage
encumbers real property security and secures the performance of the
trustor or mortgagor under a loan, extension of credit, guaranty, or
other obligation.  The term includes any successor-in-interest of the
trustor or mortgagor to the real property security before the deed
of trust or mortgage has been discharged, reconveyed, or foreclosed
upon.
   (3) "Environmentally impaired" means that the estimated costs to
clean up and remediate a past or present release or threatened
release of any hazardous substance into, onto, beneath, or from the
real property security, not disclosed in writing to, or otherwise
actually known by, the secured lender prior to the making of the loan
or extension of credit secured by the real property security,
exceeds 25 percent of the higher of the aggregate fair market value
of all security for the loan or extension of credit (A) at the time
of the making of the loan or extension of credit, or (B) at the time
of the discovery of the release or threatened release by the secured
lender.  For the purposes of this definition, the estimated cost to
clean up and remediate the contamination caused by the release or
threatened release shall include only those costs that would be
incurred reasonably and in good faith, and fair market value shall be
determined without giving consideration to the release or threatened
release, and shall be exclusive of the amount of all liens and
encumbrances against the security that are senior in priority to the
lien of the secured lender.  Notwithstanding the foregoing, the real
property security for any loan or extension of credit secured by a
single parcel of real property which is included in the National
Priorities List pursuant to Section 9605 of Title 42 of the United
States Code, or in any list published by the State Department of
Health Services pursuant to subdivision (b) of Section 25356 of the
Health and Safety Code, shall be deemed to be environmentally
impaired.
   (4) "Hazardous substance" means (A) any "hazardous substance" as
defined in subdivision (f) of Section 25281 of the Health and Safety
Code as effective on January 1, 1991, or as subsequently amended, (B)
any "waste" as defined in subdivision (d) of Section 13050 of the
Water Code as effective on January 1, 1991, or as subsequently
amended, or (C) petroleum, including crude oil or any fraction
thereof, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel, or any mixture thereof.
   (5) "Real property security" means any real property and
improvements, other than a separate interest and any related interest
in the common area of a residential common interest development, as
the terms "separate interest," "common area," and "common interest
development" are defined in Section 1351 of the Civil Code, or real
property which contains only 1 to 15 dwelling units, which in either
case (A) is solely used (i) for residential purposes, or (ii) if
reasonably contemplated by the parties to the deed of trust or
mortgage, for residential purposes as well as limited agricultural or
commercial purposes incidental thereto, and (B) is the subject of an
issued certificate of occupancy unless the dwelling is to be owned
and occupied by the borrower.
   (6) "Related party" means any person who shares an ownership
interest with the borrower in the real property security, or is a
partner or joint venturer with the borrower in a partnership or joint
venture, the business of which includes the acquisition,
development, use, lease, or sale of the real property security.
   (7) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing into the environment, including continuing
migration, of hazardous substances into, onto, or through soil,
surface water, or groundwater.  The term does not include actions
directly relating to the incorporation in a lawful manner of building
materials into a permanent improvement to the real property
security.
   (8) "Secured lender" means the beneficiary under a deed of trust
against the real property security, or the mortgagee under a mortgage
against the real property security, and any successor-in-interest of
the beneficiary or mortgagee to the deed of trust or mortgage.
   (f) This section shall not be construed to invalidate or otherwise
affect in any manner any rights or obligations arising under
contract in connection with a loan or extension of credit, including,
without limitation, provisions limiting recourse.
   (g) This section shall only apply to loans, extensions of credit,
guaranties, or other obligations secured by real property security
made, renewed, or modified on or after January 1, 1992.
  SEC. 2.  Section 736 of the Code of Civil Procedure is amended to
read:
   736.  (a) Notwithstanding any other provision of law, a secured
lender may bring an action for breach of contract against a borrower
for breach of any environmental provision made by the borrower
relating to the real property security, for the recovery of damages,
and for the enforcement of the environmental provision, and that
action or failure to foreclose first against collateral shall not
constitute an action within the meaning of subdivision (a) of Section
726, or constitute a money judgment for a deficiency or a deficiency
judgment within the meaning of Section 580a, 580b, or 580d, or
subdivision (b) of Section 726.  No injunction for the enforcement of
an environmental provision may be issued after (1) the obligation
secured by the real property security has been fully satisfied, or
(2) all of the borrower's rights, title, and interest in and to the
real property security has been transferred in a bona fide
transaction to an unaffiliated third party for fair value.
   (b) The damages a secured lender may recover pursuant to
subdivision (a) shall be limited to reimbursement or indemnification
of the following:
   (1) If not pursuant to an order of any federal, state, or local
governmental agency relating to the cleanup, remediation, or other
response action required by applicable law, those costs relating to a
reasonable and good faith cleanup, remediation, or other response
action concerning a release or threatened release of hazardous
substances which is anticipated by the environmental provision.
   (2) If pursuant to an order of any federal, state, or local
governmental agency relating to the cleanup, remediation, or other
response action required by applicable law which is anticipated by
the environmental provision, all amounts reasonably advanced in good
faith by the secured lender in connection therewith, provided that
the secured lender negotiated, or attempted to negotiate, in good
faith to minimize the amounts it was required to advance under the
order.
   (3) Indemnification against all liabilities of the secured lender
to any third party relating to the breach and not arising from acts,
omissions, or other conduct which occur after the borrower is no
longer an owner or operator of the real property security, and
provided the secured lender is not responsible for the
environmentally impaired condition of the real property security in
accordance with the standards set forth in subdivision (d) of Section
726.5.  For purposes of this paragraph, the term "owner or operator"
means those persons described in Section 101(20)(A) of the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (42 U.S.C. Sec. 9601, et seq.).
   (4) Attorneys' fees and costs incurred by the secured lender
relating to the breach.
   The damages a secured lender may recover pursuant to subdivision
(a) shall not include (i) any part of the principal amount or accrued
interest of the secured obligation, except for any amounts advanced
by the secured lender to cure or mitigate the breach of the
environmental provision that are added to the principal amount, and
contractual interest thereon, or (ii) amounts which relate to a
release which was knowingly permitted, caused, or contributed to by
the secured lender or any affiliate or agent of the secured lender.
   (c) A secured lender may not recover damages against a borrower
pursuant to subdivision (a) for amounts advanced or obligations
incurred for the cleanup or other remediation of real property
security, and related attorneys' fees and costs, if all of the
following are true:
   (1) The original principal amount of, or commitment for, the loan
or other obligation secured by the real property security did not
exceed two hundred thousand dollars ($200,000).
   (2) In conjunction with the secured lender's acceptance of the
environmental provision, the secured lender agreed in writing to
accept the real property security on the basis of a completed
environmental site assessment and other relevant information from the
borrower.
   (3) The borrower did not permit, cause, or contribute to the
release or threatened release.
   (4) The deed of trust or mortgage covering the real property
security has not been discharged, reconveyed, or foreclosed upon.
   (d) This section is not intended to establish, abrogate, modify,
limit, or otherwise affect any cause of action other than that
provided by subdivision (a) that a secured lender may have against a
borrower under an environmental provision.
   (e) This section shall apply only to environmental provisions
contracted in conjunction with loans, extensions of credit,
guaranties, or other obligations made, renewed, or modified on or
after January 1, 1992. Notwithstanding the foregoing, this section
shall not be construed to validate, invalidate, or otherwise affect
in any manner the rights and obligations of the parties to, or the
enforcement of, environmental provisions contracted before January 1,
1992.
   (f) For purposes of this section:
   (1) "Borrower" means the trustor under a deed of trust, or a
mortgagor under a mortgage, where the deed of trust or mortgage
encumbers real property security and secures the performance of the
trustor or mortgagor under a loan, extension of credit, guaranty, or
other obligation.  The term includes any successor-in-interest of the
trustor or mortgagor to the real property security before the deed
of trust or mortgage has been discharged, reconveyed, or foreclosed
upon.
   (2) "Environmental provision" means any written representation,
warranty, indemnity, promise, or covenant relating to the existence,
location, nature, use, generation, manufacture, storage, disposal,
handling, or past, present, or future release or threatened release,
of any hazardous substance into, onto, beneath, or from the real
property security, or to past, present, or future compliance with any
law relating thereto, made by a borrower in conjunction with the
making, renewal, or modification of a loan, extension of credit,
guaranty, or other obligation involving the borrower, whether or not
the representation, warranty, indemnity, promise, or covenant is or
was contained in or secured by the deed of trust or mortgage, and
whether or not the deed of trust or mortgage has been discharged,
reconveyed, or foreclosed upon.
   (3) "Hazardous substance" means (A) any "hazardous substance" as
defined in subdivision (f) of Section 25281 of the Health and Safety
Code as effective on January 1, 1991, or as subsequently amended, (B)
any "waste" as defined in subdivision (d) of Section 13050 of the
Water Code as effective on January 1, 1991, or as subsequently
amended, or (C) petroleum, including crude oil or any fraction
thereof, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel, or any mixture thereof.
   (4) "Real property security" means any real property and
improvements, other than a separate interest and any related interest
in the common area of a residential common interest development, as
the terms "separate interest," "common area," and "common interest
development" are defined in Section 1351 of the Civil Code, or real
property which contains only 1 to 15 dwelling units, which in either
case (A) is solely used (i) for residential purposes, or (ii) if
reasonably contemplated by the parties to the deed of trust or
mortgage, for residential purposes as well as limited agricultural or
commercial purposes incidental thereto, and (B) is the subject of an
issued certificate of occupancy unless the dwelling is to be owned
and occupied by the borrower.
   (5) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing into the environment, including continuing
migration, of hazardous substances into, onto, or through soil,
surface water, or groundwater.  The term does not include actions
directly relating to the incorporation in a lawful manner of building
materials into a permanent improvement to the real property
security.
   (6) "Secured lender" means the beneficiary under a deed of trust
against the real property security, or the mortgagee under a mortgage
against the real property security, and any successor-in-interest of
the beneficiary or mortgagee to the deed of trust or mortgage.
